The new disclosure rule which combines the previous Truth in Lending Act (TILA) requirements with the Real Estate Settlement Practices Act (RESPA) into one Integrated Disclosure, called TRID, has not rolled out well due to mortgage software problems and Congressional inaction, said CFPB Director Richard Cordray to the Mortgage Bankers Association (MBA).
The “Know Before You Owe” rule gives borrowers three days to examine loan documents before closing, but has drawn the ire of some lenders for potentially slowing down loan closings, and requiring borrowers to pay more for the lender to hold an agreed-upon interest rate longer. This is called a loan lock, because it locks in the interest rate during the closing of a loan transaction, but for a fee, as marketwatch tells MHProNews.
Prior to the new rule, the rate was good for 30 days, for which the consumer did not pay. However, some mortgage lenders fear with an extended closing period, the loan lock may have to go as long as 45 or 60 days, with consumers possibly incurring hundreds or thousands in additional costs to hold an interest rate.
Cordray denies closings have been longer or that consumers are incurring higher costs, saying, “These claims reflect a failure or perhaps a refusal to understand what the rule actually says.”
Closing delays will not show up until sometime in November when the loans made after the Oct. 3 implementation date will start closing.
TRID was enacted in response to lenders during the housing boom of the last decade who would increase the interest rate, add fees or change loan products at the last minute. Under TRID, mortgage lenders have to give consumers more time to understand any changes to the transaction.
Cordray blamed vendors of the software for the problems. “Some vendors performed poorly in getting their work done in a timely manner, and they unfairly put many of you (lenders) on the spot with changes at the last minute or even past the due date,” Cordray said. He said the CFPB will focus on how these vendors ae affecting the marketplace.
Jonathan Corr, president and CEO of Ellie Mae, which distributes about a third of the TRID compliant software, said while some lenders were not adequately prepared, they are dealing with loans made before and after the new rules took effect, which requires two sets of software. “This is the biggest change to the mortgage industry in 40 years,” said Corr, noting the process will likely iron out by mid-2016.
Still, the MBA wants Congress to provide a grace period until Feb. 2016 so that errors made in the TRID rules will not lead to enforcement sanctions. However, the White House says the mortgage industry has had enough time to understand the disclosure rule and it would veto any legislation to extend the deadline. ##
(Image credit: andyenstallblog)
Article submitted by Matthew J. Silver to Daily Business News-MHProNews.